The new Zune HD is the best Zune yet, and senior tech editor Glenn Derene admires its OLED screen and Zune Pass system. But why isn't it also a cell phone?

The first thing I thought when I saw Microsoft's new Zune HD player ($220 for 16GB and $290 for 32GB) was, "Man, that thing would make a great phone." Its size is just right for a cell phone. It has a 3-in., gorgeous OLED touchscreen with intense contrast (although it is not, as the name of the device might imply, high-definition). The Zune interface is quick and responsive to every tap and flick of the finger. It is also a beautiful-looking object that fits nicely and unobtrusively in a shirt pocket.

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In fact, next to the Zune HD, the iPhone and iPod Touch look positively chunky. Once I got the device up and working (Microsoft provided me with a tester unit two weeks ago, but the new Zune software was not available until yesterday), I found the user interface and OS to be responsive and quite beautiful--although after two years of using the iPhone OS, anything that works differently can seem slightly awkward. The new Zune's menu architecture is quite browsable--categories and titles are highly readable and everything has that rolling, scrolling, dive-in, jump-out logic that I've come to expect from touchscreen devices. In short, it's everything that Windows Mobile should be. And yet, Windows Mobile does not work anything like this, and the Zune HD is not a phone.

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What the Zune HD is, along with the $15/month Zune Pass, is a marvelous music learning and discovery system. That presumes, of course, that you want to explore new music or care enough to learn more about the musicians who make it. (That also presumes that you're not just stealing all of your content.) When artist information is available, the Zune software downloads bios, pictures, a discography and info on related artists and downloads it to the device. If you use an album or song that you like to make a SmartDJ playlist, the Zune software combs your collection and the Zune Marketplace for music that goes with that song. This is fundamentally different than what Apple's iTunes Genius does, because Genius offers you a mix from music that you already own, with suggestions of music to buy. Zune blends what you own together with a broad library of music that you have access to as part of your monthly subscription. Since the concept of Zune Pass is all-you-can-eat music listening, the SmartDJ encourages you to listen to and try out new artists. In fact, much of the Zune interface is designed to expand your music appreciation from one band to another to another. If you ever quit your Zune Pass subscription, however, the music you've grown to love will disappear, so to spice up the deal, you get to download and keep 10 songs a month as part of your fee. So one way to look at it is that you're paying $1.50 per song for ten songs, plus unlimited browsing for free.

Much of the music discovery functionality is a carryover from the last iteration of the Zune. What's new is a concentration on video, specifically HD video. There is plenty of promise here, but also plenty of frustration. The Zune HD is equipped with the very powerful nVidia Tegra chip, which allows such a small device to output 720p HD video. However, to do so requires a $90 external dock. That might be worth it if movie watching shared the same serendipitous discovery, all-you-can-eat model that music does. Instead, you must rent or purchase movies using Zune "points," which are only loosely linked to the US dollar. Five bucks buys you 400 points, which works out to 80 points per dollar. That leaves you to do the annoying math necessary to figure out that a 480 point rental of Coraline in HD is going to cost you $6, whereas a 320 point rental of the same move in SD will cost you $4.

It's the same irritating exchange system that the Xbox uses, which is no coincidence, since the Zune video marketplace is the new standard for movie watching on the Xbox 360. The good news from the merged marketplaces is that you can buy a movie on one device and watch it on the other. That's nice, but the integration could be so much tighter. The Zune HD has Wi-Fi in it, so why can't it operate as a networked remote control for the Xbox? The Zune HD can run apps and games (only a few exist for the moment), but those games aren't yet leveraging the strong content that's available for Xbox 360. (I'm hoping for its own sake that someone at Microsoft is pushing for a Zune Halo game.)

The biggest letdown to the Zune HD, however, is that, with its beautiful screen, comfortable form factor, powerful processor and slick UI, it could be a much more sophisticated device than it is. Allow me, for a moment, to rattle off a few features that it should have: It browses photos, but it has no camera; It has Wi-fi, but no Bluetooth; there are only three buttons, but none of them gives you direct access to the volume; It has the potential to be an excellent gaming device, but has no onboard speaker, so you must wear headphones to get the full experience.

But most of all, I get the feeling that Microsoft has created one half of what could have been a marvelous phone. If they had created a sleek, slim device with the Zune UI, built-in Exchange E-mail support, a full 3G/Wi-Fi/Bluetooth chipset, a Tegra processor that supports full HD output, then included a DVI/HDMI dongle--that would be a product that would have serious advantages over both iPhones and netbooks. Just think, new music could be constantly downloading and updating according to your listening habits, you could start watching an HD movie on the small OLED screen, then plug the device into any TV to watch it larger, or plug the device into a monitor and pair with a Bluetooth keyboard and set up a mini computer and/or gaming device in front of any screen. Plus, the $15/month Zune Pass could be folded into your wireless bill, and the device could be at least partially subsidized through a two-year contract. Now that's a device I would want to buy.